Inside Asian Gaming

acau has clinched the lead in the race to become the world’s top-grossing ca- sino destination. The city’s casino revenues surged 22% year-on-year in 2006 to reach US$6.95, compared to the Las Vegas Strip’s estimated US$6.5-6.6 billion for the year (though adding the revenues of the other ca- sinos in Clark County to those from the Strip brings the tally to over US$10 billion). While Macau’s casino revenues have out- stripped those of the legendary Strip, in mar- keting terms, Macau looks to be following the American lead. Product branding has been, for better or worse, the United States’ great gift to world commerce. Its growth in the Macau casino sector indicates that the mass market is start- ing to drive the agenda of the city’s gaming business model. Brand Change Macau casino operators are scrambling to differentiate themselves in the face of intensifying competition. Through branding, they will transform the hard-core gambling haven into a complete Vegas-style tourism destination VIP room operators normally rely on a personalised approach to woo high-rollers, but in an increasingly busy mass market with surging visitor numbers, branding is a more appropriate lure for ordinary gamblers. This can be done in a number of ways, including encouraging repeat visits through loyalty schemes, offering loss leaders such as cour- tesy buses and complimentary snacks and drinks, or simply mesmerising customers with sheer glitz and glamour. Macau’s former gaming monopolist Stanley Ho is the operator most dependent on the VIP trade, and his revenue share has been eroded by the march of mass market branding. When the first casinos from rival operators opened in 2004, analysts predicted Dr Ho’s Sociedade de Jogos de Macau (SJM) would retain over half the local market share until 2008. Yet revenue figures released in January showed SJM’s share had already fall- en below 50% in 2006. There are clear signs Dr Ho is reposition- ing his operation to meet the challenge. As well as opening new casinos, he announced a deal in late January to buy a HK$274 mil- lion (US$35 million) stake in Malaysia’s Star Cruises. The investment, done via Dr Ho’s private vehicle, Profit Boom Investment, benefits both sides. It gives Star access to Macau’s coveted gaming market, while pro- viding Dr Ho an inroad to the fledgling Sin- gapore market, where Star Cruises will soon build a gaming resort with its parent com- pany Genting Group. Genting and Star are well known brands in Asia, and in December proved their inter- national competitiveness by clinching the license for the second of Singapore’s two planned casino-centred integrated resorts,to be located on the resort island of Sentosa. In winning the license, Genting and Star outbid Bahamas-based Kerzner International and a consortium headed by resort-builder Mark Advent (creator of the New York New York casino in Vegas) and including Mississippi- based Isle of Capri Casinos Inc and Australia’s Publishing and Broadcasting Ltd. Brand Ally By associating with Genting Group, Dr Ho gains a strong brand with which to take on the western competition. The new partners plan to construct a boutique hotel and ca- sino in Macau, slated to open in 2009. The hotel is likely to be named ResortsWorld, and the casino will be operated by SJM. The link with Star also opens up the possibility of cre- ating a new and lucrative revenue stream in Macau, through gambling cruises. As the American and Australian new- comers to the Macau market start to open multiple venues targeting different market segments, the impulse to tie customers in to their brands is likely to grow stronger. Chinese consumers have responded enthu- siastically to western brands ranging from 19 18 fashion to fast food.Western casino and hotel brands appearing in Macau will likely achieve a similar following. Some observers believe novelty, rather than incipient brand loyalty, drew the crowds to the openings of Wynn Macau last Sep- tember and Sands Macau in May 2004. Ac- cording to that line of thinking, mass market customers will simply keep transferring their affections every time a new venue opens, like a big game of musical chairs. The true mass market test for the new properties is reten- tion rates. Sands Macau is certainly showing staying power, recording only a one percent fall in market share to 20% in 2006, despite the increased competition. SJM suffered the largest decline in market share. Incentive to Innovate For years,branding didn’t really matter in Ma- cau. There was little incentive to innovate, as all the city’s gambling halls fell under Stanley Ho’s monopoly license. The operators not di- rectly controlled by Dr Ho needed to main- tain goodwill by making sure they didn’t en- croach on his business interests. Now Macau is making up for lost time, thanks to the influx of billions in overseas investment following the ending of the mo- nopoly in December 2002.The latest brand to enter the market is Hard Rock International, operator of the themed hotel and restaurant chain.It has signed an agreement with Melco Hotels and Resorts Ltd – part of Melco Inter- national, the Hong Kong-listed company run by Dr Ho’s son Lawrence – to run a Hard Rock Hotel and Casino at Melco’s City of Dreams complex being built along the nascent Cotai Strip (of reclaimed land between Macau’s Co- loane and Taipa islands). The Hard Rock ven- ue will feature a 380-room hotel and a 25,000 sq ft casino, and is likely to open in the last quarter of 2008. Hard Rock International is based in Or- lando, Florida, the de facto world capital of theme parks. The company also has opera- tions in Las Vegas and in 44 other national territories, comprising 123 Hard Rock Cafes, seven hotel-casinos and one stand-alone casino. Industry analysts say the expected arrival of Hard Rock in Macau is another example of the ‘Vegas-isation’ of the territory. Betting on Non-Gaming While over 90% of the revenues of Macau casino operators are derived from gaming, Vegas operators now earn roughly half their revenue from dining, retail, entertainment and other non-gaming sources.As the Macau market matures and moves towards the Las Vegas model, its non-gaming revenue is ex- pected to increase in importance. Las Vegas Sands Corp (LVS) Chairman Sheldon Adelson is gambling on it. In the third quarter of 2006, LVS, operator of the Sands Macau and The Venetian in Las Vegas, announced consolidated results for its American and Macau operations showing a 29% increase in food and beverage revenues to US$138.2 million, and a 29% increase in retail revenues to US$9.6 million. LVS’ non- gaming revenue growth will likely jump fur- ther following the July 2007 opening of the US$2.3 billion Venetian Macau, which will feature sprawling entertainment, retail, expo and dining facilities, in addition to its 3,000 suites. LVS President and Chief Operating Of- ficer William Weidner commented on the company’s Macau strategy during a confer- ence call with financial analysts to discuss LVS’ third quarter results: “Our extensive coast side development plans are based on two fundamental concepts; that the market will expand as quality product is introduced; [and] that the highest quality products in the marketplace will not only win market share from the inferior product, but will also ex- pand the market to a new set of customers, a set of customers that either doesn’t visit Macau at all today, or visits Macau only infre- quently.” The desire of casino operators to move ever further into general entertainment means the distinction between theme parks and gambling palaces is becoming increas- ingly blurred to nearly everyone but the gam- ing regulators. No visit to Nevada’s ‘Sin City’ is complete, for example, without witnessing the pirate battle at Treasure Island Las Vegas – though nowadays the spectacle is more like Showgirls than Pirates of the Caribbean, with skimpily-attired male and female performers busily jigging in the rigging. It seems a modern casino entrepreneur needs to be a combination of showman, property developer, hotelier and retailer as well as bookmaker. One of the industry’s natural showmen is SteveWynn.He is now al- most as well known for buying famous paint- ings and displaying them in his hotels – and recently, for accidentally putting his elbow through one of them – as he is for running gambling venues. In Macau, smaller casino operators with- out the deep pockets of Steve Wynn or LVS are finding other ways to differentiate them- M Genting Highlands Resort